By Glen Bradley, principal, Point B
Five rules for supporting omni-channel fulfillment.
The concept of omni-channel retail has evolved rapidly over the last few years. Once considered an over-hyped trend, it’s become the new retail paradigm, driven by customer shopping habits that increasingly engage across multiple devices and shopping venues. It’s no longer an option to deliver a consistent and ubiquitous shopping experience across channels; it’s a matter of survival.
While most retailers are aware omni-channel has become strategic imperative, there is no easy path to support omni-channel fulfillment. In late 2014, JDA Associates conducted a global survey of more than 400 CEOs from the retail and consumer goods industry. The report revealed a troubling discovery: Despite significant investments, only 16 percent of companies in the survey say they can profitably fulfill omni-channel demand today.
The report also notes the high cost of fulfilling orders as the leading reason behind the decrease in retailer margins. A full 67 percent of respondents reported these costs are escalating as they increase their focus on selling across channels.
Omni-channel fulfillment is one of the greatest challenges facing retailers. It requires a paradigm shift that affects all aspects of the business model, not just some tinkering around the edges of technology and operations. A full-scale change management effort is essential for success.
Truly transformative customer fulfillment demands fresh thinking from leadership, as well as a new approach. Retailers can define and execute on omni-channel operations excellence by following five new rules in supporting omni-channel fulfillment:
- Omni-channel fulfillment must move from “cost center” to “value creator.” Traditionally, supply chain or logistical costs were the driving force in fulfillment strategy. Retailers built a supply chain based on speed or service to stores. Today, in order to ensure customer loyalty and repeat sales, retailer supply chains must shift focus toward how to forecast multichannel demand, share inventory, and deftly handle a significant increase in returns.
- The priority for fulfillment shifts from “stability” to “flexibility.” Retailer supply chains have traditionally been able to look inward and establish mechanisms for servicing stores and/or online customers in a repeatable, sustainable way. However, the growing number of mobile customers with new or different expectations for their shopping experience puts pressure on omni-channel retailers to develop more flexible methods to meet service and delivery expectations.
More and more, retailers are turning to stores to fulfill online orders. In a Multichannel Merchant report in April 2016, 42 percent of retailers with stores are shipping ecommerce orders from stores. That number continues to grow as there is a continual search for optimum cost/service tradeoffs within the retailer fulfillment network.
- With the strategic shift in fulfillment strategies, technology is the linchpin for managing inventory efficiently across the enterprise. Supply chain systems have become increasingly sophisticated over the last few decades. Planning systems, inventory management, and supply chain product visibility all must now be fused to give customers a consistent fulfillment experience regardless of the channel. Retailers must adapt a unified commerce mentality which can only be enabled by systems that bridge their digital and physical worlds.
- As with technology, organizational silos should be replaced by a customer-centric network. Leading companies have already begun to replace siloed practices that tended to focus on step-change improvement in individual functions with their supply chains. Supporting omni-channel fulfillment effectively will require moving to a centralized logistics network that is better organized to respond to customer demand, rather than only pushing product to locations in a warehouse. New skill sets are required that can operate above warehousing, transportation, and even demand planning in order to holistically conduct operations across an end-to-end supply chain.
- Regardless of the channel used for purchase, the customer wants to return anywhere. One of the greatest challenges of omni-channel support is the handling of returns. The advent of free shipping in the dot-com world has accelerated the need for processes and systems that ensure first-quality product is made available to sell quickly — again, in the right place and across any channel. The ability of supply chains to effectively manage returns has developed into a significant value creation role.
The role of supply chains and stores in retail fulfillment has been completely disrupted and margin erosion has placed operational executives in a difficult situation. In an increasingly competitive retail environment, retailers who apply these best practices will realize better execution and an improved customer experience.
About The Author
Glen Bradley is a principal with Point B Management Consultants, specializing in technology, operations, and customer engagement with a focus in retail and consumer products companies.